China semiconductor fund to buy Xcerra for $580m

The transaction comprises the purchase of all outstanding Xcerra shares for $10.25 apiece via Sino IC’s advanced technology-focused affiliate Unic Capital Management. The company's stock jumped about 11% after the announcement to as high as $9.90 before closing at $9.69.

The acquisition remains subject to a number of conditions, including Xcerra shareholder approval and regulatory approvals from authorities in China and the Committee on Foreign Investment in the United States (CFIUS). It is planned to close before the end of the calendar year. Xcerra will actively solicit alternative proposals from third parties until May 12.

"Xcerra's leadership team and employees have delivered quality products and innovations to their customers and the marketplace for over four decades,” Jun Lu, president of Sino IC, said in a statement. “Our partnership with and investment in Xcerra will help build on this track record of success and accelerate the company's ability to access new markets, develop new product lines, and serve more customers.”

Xcerra, formerly known as LTX-Credence, provides test and handling equipment, interface products, test fixtures and related services to the semiconductor and electronics manufacturing industries. The company does not design or manufacture semiconductor devices, but rather sells related products to industry designers and manufacturers. Sales reached $324.2 million in 2016, down from $397.9 million the previous year. Net profit fell from $28.2 million to $11.1 million over the same period.

The company will remain headquartered in the US following the transaction, with Asian operations based in China, Singapore and Malaysia.

Founded in 2016, Sino IC is the sole manager of the Chinese government’s RMB140 billion ($20.3 billion) China Integrated Circuit Industry Investment Fund. Recent activity includes a commitment of RMB50 billion to the acquisition of a Tsinghua University unit focused on integrated circuits.

Last year, the firm was involved in a EUR670 million ($711 million) bid led by China’s Fujian Grand Chip Investment Fund for German semiconductor equipment maker Aixtron. The US government subsequently blocked the deal on security grounds.

Although most China-related transactions filed with CFIUS are cleared, approval has proven to be challenging in recent years for entities with US government contracts or technology deemed to be sensitive such as semiconductors and microchips. 

China consumes about $169 billion of microchips every year, more than any other country in the world. More than 90% of the country’s integrated circuits are currently imported and the government plans to spend $150 billion over the next decade to develop the domestic semiconductor industry.

Last month Sino IC Capital and China Development Bank invested RMB150 billion ($22 billion) in Tsinghua Unigroup, an investment arm of Tsinghua University that is primarily responsible for furthering China's semiconductor ambitions. Unigroup has tasted success and failure in outbound M&A.

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